Abstract
Understanding how growth factors contribute to explaining the large differences in growth rates across countries remains an important research agenda. The common approach to exploring this issue is based on the use of multiple linear regression analyses. This work contributes to growth literature by applying a new perspective based on the use of variance decomposition procedures: Shapley–Owen–Shorrocks and Oaxaca–Blinder. These methodologies have four main advantages with respect to traditional methodologies: they make possible the quantification of the relative contribution of each factor to economic growth, they allow us to estimate the efficiency in the use of the endowments of each factor, they can be used with any functional form and they can be used with estimation methods that are robust regarding endogeneity issues. We illustrate these advantages by analyzing the causes of the economic growth gap between Latin America and East Asia over the period 1980–2014. We find that the economic growth divergence between the two regions can be primarily explained by the differences in institutions and physical capital. In addition, the results indicate that the higher East Asian performance is not only due to its higher levels of endowments in these factors, but also to the higher efficiency in its use. We connect our results with the 2030 Agenda for Sustainable Development.
Highlights
The 2030 Agenda for Sustainable Development recognizes explicitly the importance of promoting economic growth to achieve sustainable development
We begin with a regression framework, and we estimate the baseline model for Latin America and East Asia
We apply the Shorrocks decomposition (SOSD) to estimate how much each of the traditional growth factors contributes to explaining growth in Latin America and East Asia
Summary
The 2030 Agenda for Sustainable Development recognizes explicitly the importance of promoting economic growth (goal 8) to achieve sustainable development. Brundtland Report [1], focuses on the improvement of living conditions while protecting the planet and ensuring prosperity for all and future generations [2,3,4,5,6,7]. In this context, identifying which growth factors contribute to explaining the large differences in growth rates across countries is key to knowing how to prioritize policies to make effective progress toward the SDGs. Understanding why some countries grow more than others remains one of the most important topics in the economists’ research agenda, because of its consequences on well-being. Following the seminal work of Barro [8], an increasing number of empirical studies have tried to estimate the extent to which economic growth factors contribute to explaining the huge differences in income among countries
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